While Microsoft beat our estimates on earnings, Alphabet missed. Meanwhile, both tech titans topped our revenue estimates. This has put spotlight on technology ETFs for the coming days.
Let’s take a quick look on the major details of their earnings releases:
Microsoft Earnings at A Glance
Earnings per share for fiscal second-quarter 2017 came in at 83 cents, easily outpacing the Zacks Consensus Estimate of 79 cents and improving 9% from the year-ago quarter. Revenues rose 2% year over year to $26.07 billion topping our estimate of $25.2 billion.
The outperformance was credited to continued strength in the cloud business, particularly Azure, whose sales grew 93% from the year-ago period, as well as a stabilizing personal-computer market. Investors should note that Microsoft’s total cloud business brought in about $6.86 billion in the fiscal second quarter and is on track to reach $20 billion in fiscal 2018.
This clearly shows that Satya Nadella’s efforts of turning around the business, and focusing on cloud services and mobile applications are paying off and bode well for the company’s future growth (read: 5 ETF Investment Ideas for 2017).
Following the results, shares of the world’s largest software maker rose 1.43% in after-market hours on elevated volumes. Currently, Microsoft carries a Zacks Rank #2 (Buy) with a top VGM Style Score of A, suggesting that it is poised to outperform in the days ahead.
Alphabet Earnings at A Glance
Search engine kingpin Alphabet reported earnings per share of $7.56 in the fourth quarter, well below the Zacks Consensus Estimate of $7.65. Revenues increased 22% year over year to $21.2 billion and outpaced our estimate of $20.6 billion.
Fast-growing cloud-computing business and booming YouTube video advertising were behind the robust revenue performance. Aggregate paid clicks rose 36% year over year while cost per click dropped 15%.
Given weaker-than-expected fourth-quarter earnings, Alphabet’s shares tanked 2.5% in after-hours trading on elevated volumes. However, the dip could be a buying opportunity given that the stock has a solid Zacks Rank #2 with a top VGM Style Score of B (read: Will Q4 Earnings Strengthen Tech ETFs Further?).
ETFs in Focus
Investors’ seeking to bet on the earnings releases of these tech giants with lower risk could definitely look into the ETF world. While there are several ETF options available in the market, we have highlighted five technology ETFs that have the largest exposure to these companies. All these funds have a Zacks ETF Rank of 2 with a Medium risk outlook.
iShares Dow Jones US Technology ETF (IYW)
iShares Dow Jones US Technology ETF (IYW) tracks the Dow Jones US Technology Index, giving investors exposure to 138 technology stocks. Out of these, Microsoft occupies the second position in the basket with 12.3% of assets while Alphabet takes the fourth spot at 6.3%. The fund has AUM of $2.9 billion while charging 44 bps in fees and expenses. Volume is good as it exchanges nearly 275,000 shares in hand a day (see: all the Technology ETFs here).
Select Sector SPDR Technology ETF (XLK)
Select Sector SPDR Technology ETF (XLK) follows the Technology Select Sector Index and has $14.1 billion in AUM. This fund trades in heavy volume of more than 9.3 million shares and charges 14 bps in fees per year. In total, the fund holds about 72 securities in its basket with MSFT taking the second spot at 10.6% of the assets and GOOGL occupying fifth spot at 5.4%.
Vanguard Information Technology ETF (VGT)
Vanguard Information Technology ETF (VGT) manages about $10.3 billion in its asset base and provides exposure to 366 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. Here, Alphabet and Microsoft take the second and third spot, respectively, with a combined share of 19.8%. The ETF has 0.10% in expense ratio while volume is solid at nearly 436,000 shares (read: Top-Ranked Sector ETFs & Stocks to Buy for 2017).
MSCI Information Technology Index ETF (FTEC)
MSCI Information Technology Index ETF (FTEC) is home to 366 technology stocks with AUM of $580.1 million. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 9.5% allocation while Alphabet is the fifth firm with 5.1%. The ETF has 0.08% in expense ratio while volume is good at 144,000 shares a day.
iShares North American Tech ETF (IGM)
iShares North American Tech ETF (IGM) tracks the S&P North American Technology Sector Index, giving investors exposure to 273 electronics, computer software and hardware, and informational technology companies. Microsoft occupies the second position in the basket with 8.4% share while Alphabet takes the fifth spot at 4.4% of assets. The fund has AUM of $1 billion and charges 47 bps in annual fees. It trades in a light volume of nearly 47,000 shares in hand a day.
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